Donating stocks a neglected but potentially fruitful option

The tactic is most commonly used by high-net-worth individuals, but donors of all stripes can benefit, experts say.

Canadians who donate to good causes often take stock of what they can give, but they may be better off giving stock instead.

It’s not a question of generosity. Canadians always open their wallets to help, whether it’s for the people of fire-stricken Fort McMurray, Alta., Syrian refugees or earthquake victims in Ecua­dor.

But it can often be more advan­tageous, for both the giver and the recipient, to donate some­thing other than cash.

“The ability to donate shares of stock is not utilized nearly as much as it should be,” says John Bromley, founder and chief exec­utive officer of Vancouver-based Chimp Technology Inc., which of­fers an online tool for charitable giving. (The name Chimp is derived from “charitable impact.”)

“In my opinion it’s because people don’t always have access to the information about the advantages of giving shares or gifts that aren’t cash,” Mr. Brom­ley says.

In 2013 alone, Canadians donat­ed $12.8-billion to charitable or not-for-profit organizations, according to Statistics Canada.

Yet many miss out on the tax advantages of giving stocks or in- kind goods, which is allowed un­der Canada Revenue Agency rules. Out of $10-billion in dona­tions of $5 or more in 2013 for which the payment method can be determined, 65 per cent of the funds were given in cash, StatsCan says.

One common misconception in Canada is that non-cash dona­tions are only for high-net-worth individuals, says Youssef Zohny, director of wealth management and portfolio manager at StennerZohny Investment Partners, part of Richardson GMP in Van­couver.

“High-net-worth people defi­nitely understand the strategy of donating shares to public foun­dations and charities. But there are advantages for smaller donors as well,” he says.

The benefits are particularly compelling when a donor gives shares in publicly traded com­panies to charities that are not private foundations, says Andrea Thompson, senior financial plan­ner at Coleman Wealth of Ray­mond James Ltd. in Toronto.

“There is no capital gains tax on donations of publicly listed securities gifted to these chari­ties,” Ms. Thompson says.

If you bought shares and they increased in value you’d normal­ly have to pay capital gains on the profit when you sold them. But if you donated them to a charity you need not do so. So you not only receive a tax receipt for the donation, you’re also not taxed on the profit because you’ve given it away.

These gifts can be made while you are alive, deferred until death or a combination of the two, says Toronto financial au­thor Sandra Foster, president of Headspring Consulting Inc.

“They are often called ‘planned’ gifts because you can plan how and when to make them and when to claim your receipt,” Ms. Foster says. “You can consider ways to make your gift as tax- effective as possible – and work with the charity to make a differ­ence.”

Mr. Bromley says people don’t take advantage of this method of giving as much as they should because they don’t have ade­quate information.

“Some financial advisers are not knowledgeable about the capital gains exclusion, or in some cases they might feel a conflict because they profit from the assets they have under man­agement,” he says. If an adviser’s high-net-worth clients give away their stocks, the adviser will have less under management.

Charities also don’t always pro­vide the details, he adds.

“There are more than 85,000 registered charities in Canada. Only the top 5 per cent are large organizations.

“The others are driven by vol­unteers who often don’t know about [the gift-of-shares advan­tage], or their charities aren’t set up to accept the gifts. If you vol­unteer at an organization that doesn’t have its own brokerage account, accepting the gift is not necessarily seamless,” he explains.

In addition to offering tax advantages for those who donate stocks, bonds or options, the CRA also allows benefits for donors of “ecologically sensitive land” such as forests or wetlands and “certified Canadian cultural property.”

Be careful if you think this means you can donate your scrubby backyard or that plaster bust of your ugly Uncle Henry, says Darren Coleman, senior vice-president and portfolio manager at Coleman Wealth.

“Donating items [other than securities] can be much more problematic, such as art, as they are hard to value and more diffi­cult for the charity to liquidate. Charities need money, not art­work, in order to do their jobs,” he says.